Hi, im pretty new to ito calculus, heres the questionWe have 2 shares which follow geometric brownian motionsdA = u1Adt + o1AdX1dB = u2Bdt + o2BdX2share price changes are correlated with correlation corefficient rou. how would I find the differential equation satisfied by f(A,B) ?thnx in advance!

then

thanks ! if i go about simplifying that, presumably the correlation condetion between A and B will be put into use ? i know (dX)^2 -> dt, what about dX1dX2 ?

oh i just saw it , lol thanks

as you see it is basically the 'time' part in the beginning and then the sum of the individual dimensions plus (if applicable) some correlation terms. then the multiplication rules are used. when i learned that some time ago i memorized it this way (i know it's mathematically non-rigorous, but hey it worked for me): 1.) dt, the increment of time is so small, that any other increment multiplied by dt just vanishes. 2.) dW*dW=dt*correlation. If both process are the same, then obviously the correlation is 1 and if they are uncorrelated then it's 0 and else it's 'rho'. btw: there was a typo in my last post, i just corrected the formula.

cool thnx for help =)